14 May 2021

Sara Albizzati discusses the relationship between trusts and land taxes and opportunities for tax planning.

Except in limited circumstances, you must pay Land and Buildings Transaction Tax (LBTT) if you buy a property or land over a certain price in Scotland within 30 days of completion, or Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland within 14 days of completion.

An additional charge of tax applies to residential dwellings purchased on or after 1 April 2016. These additional rates are known as “Additional Dwelling Supplement” (ADS) in Scotland and “Higher Rates” in England. The additional charge generally applies when the price for the property being purchased is £40,000 or more, and where the purchaser is an individual who already owns another dwelling and he/she is not replacing his/her main residence; or where the purchaser is a certain type of trust or a non-natural person (i.e. a company).

If the property is being purchased by a trust, in order to establish whether the additional charge of tax applies to the transaction in question, it is necessary to establish the type of trust making the purchase.

Bare Trust or Simple Trust

If the trust in question is a Bare Trust (or simple trust in Scotland), the beneficiary under the trust will be absolutely entitled to the trust property. The trustees will only hold the legal title with no beneficial interest. This means that the proprietorial interest in the property will rest with the beneficiary who will, in turn, be treated as owning the property for LBTT/SDLT purposes. The surcharge will not apply provided that at the time of the purchase, the beneficiary does not own another dwelling anywhere in the world, or he/she is replacing their main residence. In other words, the personal circumstances of the beneficiary will have to be considered when ascertaining whether ADS or Higher Rates apply.

The caveat is that if the beneficiary in question is under the age of 16 (Scotland) or 18 (England), then the beneficiary’s parents will be treated as owning the property and their personal circumstances will have to be considered.

Liferent Trust

If a beneficiary has a life interest in the trust property (liferented property) which gives the beneficiary the right to occupy the property and/or receive income generated by the liferented property, the beneficiary will be treated as owning the property for SDLT/LBTT(ADS) purposes, although strictly speaking the beneficiary will not own this outright. In this case, the surcharge of tax will not apply provided that the beneficiary does not own another dwelling anywhere in the word, or he/she is replacing his/her main residence. Again, it will be necessary to consider the personal circumstances of the beneficiary involved when ascertaining whether the surcharge applies.

Discretionary Trust

If the trust in question involves settled property (i.e. Discretionary Trust), the beneficiaries will not have an automatic right to the trust property. In this case, the trustees will be treated as owning the property and ADS or Higher Rates will always apply in terms of the relevant pieces of legislation.

How can BTO help?

The overall position is complex and whether you are a trustee or a beneficiary of a trust, you should seek professional advice to ensure that you are aware of any available opportunities for tax planning and that your circumstances are taken into account fully.

The BTO Personal Team has in-depth knowledge of and expertise in trust administration. We would be happy to assist you and we look forward to hearing from you.

Sara Albizzati, Senior Solicitor: sal@bto.co.uk / 0131 222 2939